Q2 2020 Curaleaf Holdings Inc Earnings Call

Good day, and welcome to cure or at least holdings second quarter 2020 conference call all participants will be in listen only mode.

But you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation.

And they need to ask a question.

Good question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then to.

Please note this event is being recorded.

I would now like to turn the conference over to Vice President of Finance and I are Daniel Foley. Please go ahead.

Good afternoon, everyone and welcome to securely Holdings second quarter 2020 conference call.

Today I'm joined by four shorten executive Chairman, Joe will start he Chief Executive Officer, Joe Millionaire, President Neil Davidson, Chief Operating Officer, Mike Carlotti, Chief Financial Officer.

Earlier today, we issued a press release announcing our results for the fiscal quarter ended June Thirtyth 2020. The press releases are available on our website under the Investor Relations section in filed on SEDAR.

We began I would like to remind you that the comments on today's call will include forward looking statements when they're meeting of Canadian into United States Securities laws, which by their nature. If all the estimates projections plans goals forecasts and assumptions, including the successful completion of announced acquisitions and the impact of Cobot 19 Anderson.

Turning to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in forward looking statements on certain material factors or assumptions that were applied in drawing conclusions or making a forecasts in such statements. These forward looking statements speak only as of the date This conference call and should not be relied upon its predictions of future events.

We undertake no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.

Except as required by applicable.

Additional information about the material factors and assumptions, forming the basis of the forward looking statements and risk factors can be found in the company's filings and press releases on SEDAR and the Canadian Securities Exchange.

During today's conference call Charlie prefer to non <unk> for us measures I do not have any standardized meaning prescribed by I FRS. So just pro forma revenue adjusted EBITDA and managed revenue the definite <unk> definitions of which may be found in our earnings press release. Please note that all financial information is provided in U.S. dollars, unless otherwise indicated without I'd like to turn the call.

<unk> Executive Chairman Forest Park.

Thank you Dan.

At least delivered another impressive quarter of strategic and financial achievements highlighted by record pro forma revenue managed revenue and adjusted EBITDA more importantly, our overall operations strengthened as the quarter progressed with June retail and wholesale revenues growing over 40% from April we believe.

Our strategy of building a diversified portfolio of assets across multiple markets with strong underlying fundamentals rather than a narrow focus on a few strategic markets as the key to building long term sustainable profitability in this industry.

More importantly, it aligns with our strategy to build nationally recognized brands, we take the long term view that the cannabis industry will ultimately be much like traditional consumer package goods were trusted brands will be differentiating defensible and value, creating and the long term continuing to come.

Capture higher margins and consumer wallet share.

With this what we are building what's still left is the cannabis industry first true national lifestyle brand complementing our curative medical the wall misspoken spread.

Our second quarter results demonstrate the resilience of our business our customers and the catalyst consumer overall, a topic that arbitron barb.

We started the quarter and the deficit covert lighting pandemic with our adult U.S retail operations in Massachusetts close for nearly nine weeks and the bottom only able to offer limited delivery service for nearly seven weeks.

However, through the dedication of our employees and the loyalty of our customers we were able to whether these temporary setbacks and by the end of May all of our operations will once again open. Despite these headwinds we once again achieved record results even as the country continues to experience hot spots related to.

Covered my team pandemic, we continue to expect significant and profitable growth and the second half of 20 Twond.

A key driver a building momentum into the second half from 2020, and then to 2021 isn't material investment, we've been making and expanding our cultivation capacity across our key markets.

This is critical as we largely operate in the supply constrained environment and continue to see Oh in consumer demand across medical and adult used markets.

This is before any further or expected cannabis legalisation activity 2020 and 2021.

We expect more than 250000 square feet of new capacity by the end of 2020 infused stage such as ours is going to Florida in Massachusetts, which will provide a powerful growth engine for our business in 2021 and beyond as these new harvest come online.

As a result of our ongoing investments we expect that by the end of 2020, we will have almost doubled our flower cannot be square footage for more we started the year.

This does not include capacity acquired from grassroots.

In addition, an early 2021, we will bring 110000 square foot facility online in New Jersey in anticipation of adult use.

Given the significant investments, we're making it our business and the sheer scale of our footprint, we expect our business to be substantially larger than our peers as we enter into the second half of 2020 and 2021.

We continue to remain steadfast in our strategy to be the industry leader when they significant presence in each of the states. We operated through vertical integration and continued capital investments to improve our market share.

While much of the industry has slowed its capital investments due to capital constraints. We believe that this is the perfect starting to continue our national expansion strategy and feel that we have ample capital to do so.

This positions us well into 2021 and beyond several more states considering adult use operations.

Turning to our acquisition of grassroots I'm extremely proud of the purely a grassroots teams and newest effect as well as the state regulators, who worked tirelessly to.

To successfully close this milestone transaction on July 20, Bert.

As a reminder, on June 22nd we announced with purely grassroots agreed to them that the deal Tarps. We believe these amended terms allow the combined company to further optimize cash for future growth.

In connection with the closing of the deal we completed the private placement for approximately U.S. dollar 25 billion to help bolster cash for future growth and satisfying the technical requirement related to the closing of the grassroots acquisition.

The addition of grassroots the nations largest private operator immediately strengthens our portfolio, adding important assets and increasing our U.S. footprint from 18 to 23 states.

Particularly in high growth markets truly its expanded geographic.

It's about three presence now offers access to medical for adult use kind of us to more than 192 million people or roughly two thirds of the United States population.

Purely because now the world's largest kind of this company by revenue and the most diversified vertically integrated catalyst property that I'd states, the world's largest kind of as market.

Our overall portfolio now contains over 135 to spend.

Almost 50 combined processing and cultivation licenses.

Truth is a strong market leader throughout the Midwest, where the portfolio over 50, this battery life and.

Including 31 operational at close as well as 15 cultivation and positive licenses.

Fruit has a leading presence in certain large markets in which generally did not operate traditionally accelerating our continued expansion across the U.S. and Illinois, Pennsylvania, which are among the fastest and largest growing kind of this markets in the U.S. are also most significant immediate opportunities.

Grassroots also expand purely for the Arkansas, North Dakota, and Vermont as well.

Yes, its footprint also complimentary to our existing businesses and seven other states, giving us increased scale operating leverage and major markets, such as Arizona, Marilyn, Michigan, Connecticut and Ohio.

I'm also pleased with our integration of select which is rapidly becoming the first true national adult you spread select is now available and 12 states as we added six new states the flex reach since the closing in February.

We're still in the early stages of realizing its full potential including improving margins.

Wrapping up our discussion on acquisitions I believe it is important to point out that speaks to the quality of our management team our processes and our credibility.

Purely for successfully closed on every one of its announced acquisitions a rarity every space dominated by fits and starts and M&A I'm pleased with not only our track record of identified complementary assets, but did not execution to close on these important growth opportunities.

Turning.

To the legislative missions.

As I stated last quarter at the federal level, there's much work to be done however at the state level things continue to move rapidly Twentyth. One is setting up to be another positive year to potential cannabis legalization adult uses of the November ballot in two key large cabin states and it's purely has a leading presence.

Arizona and New Jersey.

Separately, Mississippi, and South Dakota will vote on bedrooms to legalized medical cannabis and their states and Montana will vote on the measure to legalize adult use.

If these ballot measures passed and all indications are they will.

Well I did by broad polling support this would bring the total number of medical states to 39, representing approximately 85% of U.S. population and adult you states the 14th.

Further we believe the potential legalization of adult use in new Jersey could kick off a wave of legalization and northeast with New York, Connecticut, and Pennsylvania likely to seriously consider adult use legalization as a reminder, purely has a significant leading presence.

Each of these states.

Turning to our financial results.

Despite the difficult operating environment, Massachusetts in Nevada during the quarter I'm very pleased with the results we posted in the second quarter. We once again delivered record pro forma matters revenue and adjusted EBITDA and is that in addition cash flow from operating activities during the quarter was 23.4 million.

Yes.

We expect our overall free cash flow convergent profile to pool in the coming quarters.

Pro forma revenue of 165.4 billion reflects the power of our platform and leadership position in the sector, Matt as revenue grew 16% sequentially to 121.4 million and adjusted EBITDA grew 40% sequentially to 28 million.

We believe this growth is impressive despite an estimated 25 and a half million revenue impact from cobot 90 during the quarter and demonstrates the operating leverage present, our business as we scale.

In addition, during the quarter, we incurred higher operating costs of approximately one point eightmillion associated with our efforts to manage through the cobot 19 pent up.

These expenses were not added back to our reported adjusted EBITDA.

Based on the current operating environment, and assuming a continued recovery in Massachusetts and somewhat challenged recovery in Nevada.

We expect to generate Coordthree pro forma revenue for the third quarter of approximately 205 to 215 billion. We expect managed revenue to be approximately 190 to 200 billion, which includes the recently acquired grassroots assets for the period of July 23rd since September Thirtyth, Mike will go into more detail.

On our outlook in his section.

Meanwhile, we continue to work with regulators to close our transactions with alternative therapies group or 80, G, which continues to be included and managed revenue, but ultimately we moved to wholesale revenue. Once we close in the acquisition of 80, geez cultivation and processing assets. We currently expect to close on the acquisition of 80 G by the end of the.

Third quarter.

Our balance sheet remains strong with approximately 122.8 billion of cash on hand at the end of quarter to.

The change from quarter, one to quarter to cash was primarily driven by continued capital investment our businesses and funding for additional accretive acquisitions that expanding our footprint subsequent to the ended the quarter. We raised approximately 42 million of cash proceeds through sale leaseback transactions at 24, and a half million of net proceeds from that.

July private placement.

The third quarter, we expect that our capital expenditures and acquisition cap spend related to the previously announced deals will increase from the second quarter levels. At this time, we continue to believe we're well positioned to fuel our organic growth and strategic acquisition needs and fluctuated not require raising additional equity.

Hello.

Looking back on the first top 20 to what we've accomplished a lot in a short period of time, despite the challenges brought on by corporate banking.

However, we also recognize much work to be thought as the candidates industry continues to consolidate and stay tuned out and expanded initiatives. My partners that I remain committed to funding up to $100 million for particularly attractive opportunities that may arise and this cash constrained environment.

Our strategy as always is just structure any deal or capital commitment and such ways to advance our market leading position and most importantly drive shareholder returns.

As part of the strategy I reiterate that I have no plans to sell single share of generally remain fully committed to the growth and success of the company I will now turn call over to John.

Thanks, Laura before I begin my state by State review I want to reiterate our appreciation for all the hard work of our employees the grassroots team regulators and the loyalty of our customers for helping carefully why did the covert 19 crisis.

Our second quarter results reflect the strong fundamentals of our underlying business and the tremendous operating leverage inherent in our business as we continue to scale.

Our strategy a vertical integration early in the lifecycle of our core markets is paying dividends.

We believe our focus on driving returns on invested capital in markets, where they try to qualities is key to driving long term shareholder value.

We continue to see tremendous opportunity to further solidify our position at each of our markets of operation, while keeping a watchful eye out for new opportunities that may present themselves organically or through acquisitions.

What's the strategic focus we closed on four key acquisitions to date and 2020 select grassroots our alternative carrying Connecticut and blue coup in Colorado as well as securing important license awards and you saw in Pennsylvania.

As Bob touched upon our most recent acquisition of grassroots is that your game changer.

With grassroots clearly can't the business that has grown tremendously over the last year and brings with immediate operational exposure to the fastest growing cannabis markets in the nation, Illinois in Pennsylvania, as well as several other new markets and complementary assets in existing markets.

This important acquisitions, along with a previously mentioned acquisitions like things wins and the robust organic growth, we are experiencing position carefully for strong future growth.

Organically, we expect you add an additional 17 purely just batteries across five states and expand our cultivation capacity by over 250000 square feet across Arizona, Massachusetts, Illinois in Florida, all by year end and complete our New Jersey expansion in early 2021.

When coupled with our strategic acquisitions, our reach will grow to more than 100 dispensers. Ultimately, we expect to grow our operations to nearly 140, dispensary and 2.3 million square feet of cultivation space.

This will further enhance purely position as the most well diversified vertically integrated care bus company in the United States with access to nearly two thirds of the entire U.S. population.

We believe our growing profitability and track record of successfully closing every announced transaction speaks for itself, but at Boris eluded too there is still at large opportunity for us to pursue additional growth opportunities you thought for the plenty of additional growth capital.

As such we will continue to focus on opportunities a further <unk> securely and the national enterprise, allowing us to further expand on our national brand strategy, which is already well underway.

We can do you didn't make improvements in our operations and I'm encouraged by the rapid progress.

For example on the technology front, we now have eight states accepting debit tender and we plan to roll the technology out in three additional states by the fall.

In aggregate, we have seen in nearly 20% increase in average transaction value within debit transactions as compared to cash and the adoption rate as every 20%.

Higher average basket size debit card transactions have not led to a decline in customer visits.

We're in the early stages that this rolled out do we expect that debit transactions as a percentage of overall transaction volume will continue to increase meaningfully over time.

Overall, we continue to focus on improving our online and cashless solutions and are seeing robust growth in online commerce, what the launch of our new customer facing website in may of this year.

We will continue to invest in improving our online presence as well ease of transaction for our customers.

Our goal is to create a candidates transaction, but it's more in line with modern retail practice, thereby giving the consumer flexibility to tailor their unique or at least cannabis experience to their specific needs.

Turning to a recap of second quarter operations and our six it significant progress <unk> East coast in Central States.

In Florida, we maintained our market position well completing significant additional through our cultivation capacity.

We began populating the first room and our new 50000 square foot indoor facility in July and along with further ongoing expansions within the existing footprint of our 278000 square foot Dutchcow Screenhouse will more than double our flower capacity by year end to increase sell through and our current stores and.

To further support our growing retail dispensary footprint.

We expect you finished the year with 39 stores located in every major populations that are in the state.

We also continue to innovate in Florida, and recently launched the first sublingual to have a product in the market.

We recently introduced to lock in the state and have several innovative products and the pipeline for launch this year.

Medical candidates demand in Florida remains strong.

The market added nearly 20000, new patients in June and other 20000 in July for a total of over 380000 patients.

We expect Florida realized over 1 billion in sales and 2020, and we remain laser focused on capitalizing on the immense long term opportunity in the state.

And Massachusetts, I don't you sales were prohibited for all of April and most of mine.

During this time, we continue to serve patient that our medical stores in hand over in Oxford, and one adult you sales right again permitting that I'm Morial day, we immediately resumed adult you sales and Provincetown, Oxford and where.

While it was frustrating to have shut down some of our stores for nearly two months, we remain bullish on our position in Massachusetts.

Currently the only adult use market on the east coast and Kehrli films date.

We are one of the few companies in the state to operate the maximum threed they'll use defense trees, and one of only 25 companies license for adult use cultivation and manufacturing.

With the number one market share based on total license does help.

I grow facility. Currently consists of 50000 square feet a fully built out in your production and we expect you receive our final approval for an additional 50000 square feet during the third quarter.

So more than double our cultivation capacity of high quality indoor flour and its state that commands a higher dollar per pound of wholesale flower and the nation. According to cannabis benchmarks.

In July we launched select branded products in Massachusetts and couldn't be happy what the market's initial response.

Collectors America's number one oil brand and we look forward to continuing to expand some vice president and the rapidly growing Massachusetts market.

We remain extremely optimistic about the overall prospects for the they'll use market and 2020 in block and beyond.

In New Jersey, the team continues to exceed expectations and built on our leading market share. This fast growing medical state, but it's very likely to legalize. It don't use later this year.

In adult use measure will be out in November ballot, and recent culture over 60% support.

In July we completed a refinancing on our new 110000 square foot production facility and Winslow.

Which provides us up to 2.9 billion to build out studio cultivation of processing operation.

The completion of the facility well more than double our capacity in this undersupplied market.

We've already begun construction and can't wait to get this new facility online in early 2021, creating hundreds of new jobs for the state.

We also continued to make progress and opening additional dispensary and expect to open at least one additional location by yearend.

On top of all that early this quarter, we completed the process that reorganizing our new Jersey operations into a for profit entity given its 100% ownership of this key asset.

In short clearly Thats currently the leading retailers and wholesalers and the state of nearly 9 million residents.

Our continued retailing cultivation investment positions us extremely well to capture outsized gains as a medical market expand and if adult you sales are approved by voters, which we believe is likely based on recent going.

Moving on in New York, and the second quarter, our retail operations once again achieved over 25% market share According to state tax data.

Combined with our strong wholesale operations, we estimate we have the number one market share in the state.

Fairly for the first company in New York offer ground flower. The first the offer chewable job product. The first in our license costs to open the maximum 40, Spencer East and we remain poised to continue to lead New York as the market expense.

Well Corona virus slogan that's it for adult use legalization and the legislature. This year, our four stores delivery service and fully built out 72000 script production facility will allow us to maintain and build our market share going forward.

As you said before we believe New York represents one of the largest untapped opportunities in the U.S. and we look forward to playing a key role and the development of the state of over 19 million residents.

We also think that New York will ultimately be comedy adult you state and are already formulating plans to materially increase our cultivation capacity within the state.

In Maryland, clearly, leading operator with vertically integrated operations and 40 Spencers.

The lack is also quickly establishing itself as the leader innovate category, but the number two market share in the second quarter. Despite only launching in the market late last year.

The Maryland market continues to see impressive growth whatever 100000 certify patients in Q2 sales increasing over 20% to 110 million.

We're currently working on divesting certain about Maryland assets I know you achieve regulatory approval to combine to curate leasing grassroots operations and the way that comply with regulations that prohibit any company from Oneq wasn't for dispensary and more than one cultivation of processing facility.

This gives us the opportunity to select the best assets them carefully congrats routes to fully optimize our footprint.

As such on the production side, we plan to divest here at least 22000 square foot facility and replace it with grassroots fully built out 55000 square for facility more than doubling our open.

On the retail side, the combined company, we'll have four dispensary strategically located across the state.

One dispensary in Reisterstown, clearly Kelly's top farm store.

One dispense drink Gaithersburg, which has a current carries dispensary, we plan on relocating Q4 to a new better location within the same city.

And to operational Dispensary said I movable anywhere in the state.

These are to avoid tens, especially like the Maryland that can be moved to any location give miss the opportunity to move them to the best in most strategic retail locations in the state.

We've already secured one site and have the other identified and couldn't be more excited about optimizing our footprint.

In the meantime, our current positioning remain strong as we seek to maximize the value of the divestment opportunities for our shareholders.

Moving on to Connecticut, surely now has four of the states 18, dispensary licenses and one of four production facilities, giving us the number one market share in the state.

In Q2, we closed the acquisition of our alternative care three dispensary and overnight became the leading retailer in Connecticut.

Grassroots further strengthen our retail footprint by adding it, especially in Groton, which opened on July 24th.

Combined with our existing 60000 square foot production facility in Simsbury. The addition of the three artist centuries has been immediately accretive to our margins and I cannot come at a better time.

In June chronic pain with I love to qualify condition, which according to the commissioner of the Department and overseas. The program is expected to double the number of patient mistake.

Also in June we launched the likely Connecticut, reintroducing selectively life cartridges and have an overwhelming positive feedback from patients.

On the Legislative front, we're seeing growing bipartisan support for adult use legislation and are optimistic that adult use candidates will be a reality, Connecticut and the next year or two.

Again, clearly says well positioned to capture current market growth driven by the addition of chronic pain as well as any future don't you sales.

And maybe we can play transaction will enable us to consolidate two of the eight medical license holders, which we previously managed under managed service agreement and continue to lay the groundwork for care at least to be a leader in middle East market when it launches in early October.

We intend to open the maximum afford got used retail locations early in the program with location secured and then development well greatly expanding production capacity across the state.

Well that Ed we secured a new 40000 square foot production facility and they're also increasing the size of our current grow facility from 28000 50000 square feet.

It's expanding capacity, we're not only support our floor plan dispensary, but also provide us with a bigger wholesale platform and drive the growth other select brand, which we launched in made in July.

Mainstream supportive cannabis and sizable tourist market bode well for growth and 2020 and beyond.

In Ohio, we're pleased to announce final cultivation of processing licenses were worried in July for the 32000 square foot, Ohio grown therapies facility and Johnstone.

Facility includes the maximum allowable cultivation of 25000 square feet plus processing square footage that will allow us to deliver nearly 12000 pounds a flower per year, bringing a full breadth of products, including select to the market.

Grassroot provides purely for two of the state's 51 operational dispensary, completing our vertical integration mistake.

In the meantime wheel divest grassroots existing 10000 square foot level to cultivation and processing facility to conform to state regulation.

Oh, Hi already has over 100000 registered patient despite starting sales just late last year.

In Q2 market sales around 50 million.

We are excited about the opportunity for growth in this important mid western state has approximately 11.79 resonance.

In Pennsylvania after the closing of grass roots in July we immediately became a top player with nine dispensary and 75000 square feet, a fully built out and operational cultivation and production in this fast growing medical market with over 350000 registered patients it fell 2.8% of the state.

Population.

We're extremely pleased at how these assets are performing.

Grassroots has the right open additional through dispensers in Pennsylvania, and clearly through the clinical Register license, what the University of Pennsylvania, which we were awarded early this year can open an additional six dispensary at 50000 square feet a cultivation capacity.

As such we are now strongly position this market the nation fifth largest with 12.8 million residents and we expect Pennsylvania to quickly become a key market securely.

Pennsylvania as another stayed on the eastern Seaboard that we believe will strongly consider adult use legislation in the next one to two years.

And now the grass root takes we are excited about his Illinois.

Illinois, a nascent six most populous state with 12.7 million residents and the newest adult use market U.S.

And this key state grassroots a sick operational dispensary and 70000 square feet, a fully built out into a cultivation.

We'll be expanding our cultivation and Illinois do as new 55000 square foot greenhouse, which will be funded with recapitalize completed in early 2021.

For additional stores are expected to open by year I'd for a total of 10 stores strategically located across the grid of Chicago area.

Including grassroots newest stores, which opened in downtown Chicago in July.

This footprint will make Carol if one of the only three operators in Illinois with vertically integrated operations and the state wide maximum tend to spend series.

It's no secret, Illinois has quickly grown into one of the nations largest cannabis markets with annualized sales already approaching 1 billion. After only seven months of adult use.

Through grassroots kirilenko immediately become a market leader and we look forward to continue rapidly developing these important assets.

Now I want to take some time to touch on our western strategy.

And Arizona, where clearly has a number two market share based on my son does help our eight stores have seen extremely strong revenue growth in 2020.

We added additional dispenser license in July via grassroots differ three strengthen our dispensary footprint.

We've identified a location for this license it doesn't metro Phoenix area and look forward to opening this store our ninth nearly 2021.

In Q1 of this year, we doubled our canopy in our 100000 square foot facility Holbrooke with a focus on improving gross margin in free cash flow through increased vertical integration and have additional expansion projects underway to complete the build out of the entire facility.

Elect is already a leading brand and Arizona with top three marketshare and has expanded its product line do include Gummies and pictures.

We plan to win additional market share for select my further integrating so like within our existing production assets and introducing new products, including like resident.

Arizona continues to be one of the largest cannabis markets in the U.S. well over 250000 registered patients or 3.6% of the state population.

And we remain confident residential vote to approve adult use on the November about.

Surely is extremely well position to capitalize on adult yourself if approved.

In California, the largest cannabis market in the world. So that continues to be a top three they brand and has expanded its family of products include Gummies My resident tinctures.

In Q2, we sign herbal, California largest cannabis distributor and supply chain solutions company.

As the exclusive distributor of select products in California.

This partnership has resulted in an immediate gain including an increase in deliveries expanded customer footprint and more cost effective delivery method as well as opportunity for continued growth, bringing selection was an 850 license dispensary and living partners across the state.

Meanwhile, we continue to harvest regularly or 190000 square foot cultivation facility in Salinas, providing carefully for additional wholesale revenue and improved margin to the backward integration of select ended this asset.

In Nevada, we quickly pivot in Q2 to deliver only sales when storefronts order to close.

And safely reopen out you dispensary that may eight per state regulations.

On the production side, we have continued to operate on plan and our three production facilities in the state.

With our focus on local residents the pace at which tourism rebound it'll be a key sales driver for clearly from Nevada.

We closed on the acquisition of acres in late 2019, and we're working to increase the productivity of these assets, allowing us to back it integrates like into our supply chain.

They renewed emphasis is on this wholesale market what the recent launch of new select products, including Gummies and tinctures will allow us to achieve the full potential of the brand.

With that and so that captured a top three veight market share in Q2.

In Oregon, where it's like they get a top rebate brand, we've improved our margins by backward integrating select and are established vertical operations, but 37000 square feet of cultivation.

We are committed to growing just like brand profitably and in a way that continues to end customer and patient trust.

In Colorado, we closed the acquisition that Blue Kudu in July a producer cannabis chocolates baked goods and gummies that utilizes high quality ingredients. What this clearly contained an 8500 square foot processing facility to support the expansion of select brand in Colorado.

So like successfully launched there in January we view this market as an attractive opportunity to build brand identity and gain market share after a robust dispensary market.

Got it was the second largest state in terms of Canada's revenues.

And you talked we planned opening dispensary in the city Lehigh later this month.

Hi, its near the geographic center of Salt Lake City, Provo, or combined statistical area, which contained 82% or the stage 3.2 million residents.

Purely Toby wonderfully for operation on this batteries in this market out of 14 dispensers license in January of this year.

We're also nearly complete with the construction of our new 7500 square foot pharmaceutical grade processing facility and North Salt Lake City.

Finally, I would like to highlight the significant progress you've made some closing the acquisition of slide on February 1st.

Our goal was flux is clear to create a national lifestyle brand that consistently resonates with consumers through its value proposition and innovative product offerings.

We've been intently focused on three key areas launching select and new markets, introducing new end demand form factors and formulations runs like product suite and realizing cost synergies by integrating so like supply chain when the Kehrli SAS production infrastructure.

As part of our initiative to expand flex presence and the past four month alone. We've introduced selective six new state, including Colorado, Oklahoma, Connecticut, Massachusetts made in Florida.

Well that is no longer just a west coast Brad as its products are now available coast to coast. A total of 12 states and we plan to rollout select to several additional markets by yearend, including newly acquired grassroots markets.

When we launched like in a new market, we're not just doing it to check the box, but you introduce trusted products to consumers and drive reliable repeat business.

This is evident in the fact that according to Bts data.

In Q2 select had top three they market share in California, Oregon, Nevada, Arizona and Maryland.

And importantly, when we launched locked in an existing carefully state our in house data shows that select as any comments on revenue securely such that when we launch select products in Connecticut, Maryland, Massachusetts, three states an existing currently wholesale businesses, we've seen higher average unit sold and higher average revenue per week and AG.

Okay, then compared to securely historical sales.

This proves that as you roll select out across our entire platform. We can expect to see additional revenue gains without cannibalization.

The main driver behind Miss it seemed like high quality and targeted product line.

After closing the acquisition in February we launched a brand new product for select select elite lives, which has a broad spectrum oil product derived from fresh frozen flower, capturing more essence of the living plant and a higher Turkey content, resulting in enhanced flavor.

Thank you won't be lush elite live in Arizona, California quickly spending to Maryland, Michigan, Oregon Academy in Q2, and played a role up the product to several additional markets by yearend.

We've also launched like nano gummies made with minimum Austin technology, which provides the faster onset and lighter offset the traditional edibles and I'll say more predictable experience for the consumer.

Due to the precise in calibrated effect, you know gummies are perfect micro dosing solution, an optimal choice for consumers looking to try candidates. So first time are for those seeking alternative consumption methods.

So like I always are now available in Arizona, California, Massachusetts main Nevada in Oregon, where several additional new states launches planned by year end.

Combined with clearly its industry, leading production infrastructure, we've been able to realize significant synergies and a more streamlined supply chain for select.

For example, in California, we've been able to reduce like simple cost by sourcing raw materials from I called they should facility and our existing processing operations mistake.

The same is true and just about every state worst like this so.

Those synergies were a big driving our thesis for this acquisition and well work remains were pleased with cost savings have been able to realize this far and our ability to develop a slight brand into both a strategic and profitable manner.

In summary, I am pleased with our progress as he moved through 2020.

Despite the challenging environment presented by coping Nike, we have managed to weather the situation extraordinarily well.

And the best in General remains a bright spot in the consumer space and we're confident that clearly if remains one of the best position companies to emerge from the crisis stronger than ever.

As we entered the second half we are poised to deliver strong growth throughout successfully completed acquisitions additional license wins and organic growth of our existing business.

We are executing on all fronts prudently deploying capital the key markets expanding both our brick and mortar and all my presence.

We remain focused on growing our cultivation and processing sales and marketing and innovative and proprietary R&D to deliver brands that resonate with both our patience and lifestyle customers. We continue to make progress on planned investments in several key states many of which will be completed the second half of 2021.

We expect the field strong growth both in the top and bottom line, leading to carefully becoming free cash flow positive. After all claim planned capital expenditures in coming quarters.

Now I'll turn the call over to my Carlotti to review our financial.

Thanks, Joe.

Looking at the second quarter, we once again posted record results as we remain focused on generating strong revenue and adjusted EBITDA growth. We believe will drive long term value creation for our shareholders.

The second quarter, we not only posted record pro forma and managed revenue, but also posted our fifth consecutive quarter of record adjusted EBITDA.

Despite the challenges presented by covert 19 in Massachusetts in Nevada, our broad geographic base and product diversity, a key strength of Kehrli.

Allowed us to deliver these outstanding results.

Second quarter results were driven by strength in Arizona, California, New York, New Jersey in Connecticut, as we continue to see strong growth in operations and these key states.

Vertical integration remains a key component to our strategy.

We are increasing cultivation capacity in each of our states of operation, where we continue to see expansion of medical programs and to our ongoing discussion around legalizing adult used consumption.

In the near term this includes Arizona, and New Jersey and longer term, Pennsylvania, New York in Connecticut.

Our gross margins from Canada sales increased nearly 250 basis points to 42.9% as compared to the second quarter the prior year.

The increase was primarily due to higher operating capacity the pope companies cultivation and processing facilities in several states offset somewhat by Tobin 19 related impacts in Massachusetts in Nevada.

As mentioned on previous calls, while we expect our gross margins from Canada sales to trend upward.

It will continue to fluctuate quarter to quarter based on our investment cycle in processing in cultivation as we continue to expand and bring new facilities online.

Overtime, we expect this fluctuation a moderate as our investments continue to ramp and the capital intensity around investments continue to moderate.

And the second quarter managed revenue increased by 120% over last year to a record 121.4 million and was up 16% sequentially.

We estimate the impact from covert 19 to managed revenue was approximately 25.6 million during the quarter.

Total revenue for the quarter was a record 117.5 million up 142% over the last year and up 22% sequentially demonstrating strong growth that exist in both our core and managed business operations.

In order to provide more clarity we have once again provided a breakdown of retail wholesale and management fee income as it pertains to total revenue.

As a reminder, select is largely contained in the wholesale revenue line sales of select products in our retail operations are contained in retail revenue.

We reported record adjusted EBITDA of 28 million in the second quarter up 40% sequentially and up over five fold compared to 4.4 million in the second quarter of 2019.

The increase year over year was primarily due to continued scaling of operations and higher gross margins across several states, notably in Arizona, Florida, New York and New Jersey.

This was offset somewhat by continued investment in key markets, where we are expanding capacity to meet demand and the impact some covert 19 in Massachusetts in Nevada.

We're pleased with the flow through and strong growth in adjusted EBITDA. Despite the impacts of covert 19.

Our retail and wholesale revenue more than doubled to 99.6 million during the quarter as compared to 37.7 million in the second quarter the previous year.

Management fee income was up 66% to 17.9 million in the quarter versus the comparable prior year period.

The increase in retail revenue was primarily due to organic growth and new store openings.

Florida, Massachusetts, New York, the select acquisition as well as the acquisition of three dispensers in Arizona to dispensers in Nevada, and from Maryland, offset somewhat by the impact of covert 19 related closures and Massachusetts in Nevada.

We grew our retail footprint to 57 operating dispensers as of June Thirtyth 2020 up from 45 on June Thirtyth 2019 as of today. We operate 87 dispensary is with the inclusion of three dispensary as we acquired in Connecticut in April and the addition of grassroots operational dispenser.

Yes.

SGN a for the quarter was 40.5 million as compared to 28 million in the prior year period, and 45.9 million in the prior quarter.

Adjusted for one time charges as DNA for the quarter was 36.3 million compared to 34.7 million in the prior quarter were 29.9% of managed revenues a decrease of approximately 320 basis points compared to the prior quarter.

As we identify additional cost savings and scale overall operations. We expect our asked you need to continue to decline as a percentage of managed revenue, resulting in significant operating leverage.

During the quarter income tax expense was driven by deferred taxes associated with the increase in biological assets.

Net loss attributable to securely holdings for the second quarters 2020.

2 million as compared to a net loss of 24.5 million in the second quarter of 2000 and team.

Due to our acquisitive nature, we believe adjusted EBITDA still best measure of our performance as it excludes the impact of 43.3 and non cash charges related to biological assets depreciation amortization and stock based comp as well as 4.2 million of onetime items prior.

Generally related to extraordinary legal fees integration costs and startup costs.

We have provided a reconciliation of net loss to adjusted EBITDA in the press release.

Moving onto the balance sheet.

As of June 30, 2020, we had 122.8 million of cash on hand, despite our expectation the capital expenditures and cash acquisition spend will increase in the third quarter versus the second quarter, we remain confident in our financial position and believe we have sufficient cash on hand to fund.

Current business initiatives to support future growth.

Furthermore, several of our key states continue to generate increasing operating cash flow, which paves the way towards generating significant organic cash flow.

Finally, as Joe noted, we believe that capital in the capital investments. We made in 2019 continue to make in 2020, well leak care leaves to becoming free cash flow positive. After all planned capital expenditures in the coming quarters.

Weighted average fully diluted shares outstanding were 533.2 million. This did not include the approximately 116.3 million shares its street in the graduates transaction or the 4.4 million shares issued in the July private placement.

A quick recap of a man of the amended grassroots steel times as Boris mentioned on June 22nd we announced a Karen it's been grassroots had agreed to amended deal terms, whereby the base consideration of 500 and 102.8 million shares remained unchanged with the additional shares being issued to grasp.

Shareholders, increasing from 40 million to 90 million in aggregate, we issued 116.3 million carefully shares grassroots existing shareholders and convertible bond holders combined.

These new certainly shareholders will own approximately 18% of the pro forma combined activity.

As a technical conditioned to closing we raised net proceeds of approximately 24 and a half million in a private placement of 4.4 million shares which closed in July.

Additionally, today, we'll be filing a notice of intent to file a shelf registration. This shelf registration is intended to provide the company with increased long term balance sheet flexibility.

While we do not have any current plans to utilize the shelf registration. We believe it's prudent to add this incremental financing flexibility should unforeseen opportunities arise to deploy capital in the future.

With respect to guidance as Boris mentioned based on current trends in our business and the ongoing recovery in Massachusetts, and somewhat challenged recovery in Nevada due to covert 19 pro forma Q3 revenue is expected to be approximately 205 to 215 million.

We expect to generate Q3 managed revenue of approximately 190 million to 200 million, which includes the partial Q3 benefit of the recently acquired grassroots assets from the period of July 23rd to September Thirtyth.

The following as a bridge for our Q3 managed revenue guidance of approximately 190 to 200 million, we expect to generate approximately 150 to 160 million of managed revenues from core clearly select operations.

We estimate grassroots to contribute approximately 40 million in reported net revenue.

Grassroots closed on July one it would have contributed approximately 55 million of revenue.

In the third quarter net of assets held now being held for sale in Maryland in Ohio to meet Maxim license requirements.

As Joe noted in his remarks during the quarter, we converted one of our main assets remedy to a for profit which was included in our Q2 financials.

In early July we also reorganize main organic therapy, and New Jersey, leaving alternative therapies group 80 G. As the only outstanding entity still in managed revenue.

We continue to work on securing final approval and we hope to consolidate during the third quarter.

Once the acquisition of 18, G.'s cultivation and processing assets is completed we will no longer provide manage revenues in our earnings releases reporting only IRS total revenue.

Please note that the conversion of these agencies will modestly reduce our adjusted EBITDA margin as the operating costs of these entities will now be consolidated onto our income statement versus recognizing the profits from management teams.

Lastly, these expectations assuming no further changes in the operating environment due to covert 19 for the remainder of the quarter, including potential we lockdowns or closures.

With that I'll turn it over to the operator to open the line for questions.

We will now begin the question answer session to ask a question. Please press Star then one on your Touchtone phone.

If you're using speakerphone, please pick up your handset before pressing Nicky.

Do you enjoy your question. Please press Star then too.

Our first question today comes from Vivian is there with Cowen.

Hi, Thanks, so much for the question.

Grassroots Oh.

My first question I'll keep it short cuts you given where we are on the time on is just double click on on the guidance, obviously looking for very robot on sequential growth.

The commentary on where you guys are seeing the business quarter to date to offer some comfort around age ability. Thanks.

[noise] Vivien this is Joe lusardi. Thanks for the question yet in terms of the guidance I think.

You know, we feel pretty good about where where that's going to come out I think last quarter, we guided and that we came in slightly above that but I think we're feeling pretty confident we can we can get to those numbers.

[laughter].

Is that call out in terms of.

That's right.

Oh, no I mean to be honest, we're seeing strength across the board, we're seeing increased demand across the country without exception all markets and we're feeling very good about where a position we've done a lot of work to solidify the business and managed to covert end, where we're feeling pretty confident in mid August where we're setting.

Okay. That's a one quick question on Joe I believe you mentioned.

Okay.

That's 100 and for either censoring do you have that timeline.

Yeah, I think we'll get there by early 2021, hopefully by Q1 Berger as we said we're going to open up another 11 dispensers in Florida to get to 39. This year. Those are all either completed or almost nearly completed and grass uses a number of stores and the pipe. So feeling very confident we can get to weren't 40 by early next year.

Sure. Thanks, Alex.

Thanks, everyone.

Our next question comes from Andrew plus the new with Stifel.

Hi, good evening and congrats on the impressive quarter.

Maybe.

Maybe if I could ask about select a little but.

You guys called out with all the work that you've done so far and.

Also the fact that there's still lots to be done I'm, just trying to get a little bit more color on that can you maybe quantify how many stores selectors and now I think at the end of Q1. It was about 800 stores.

And does well.

On the on the reverse integration.

Could you guys a little bit of color on on where select stands and in terms of a margin perspective, and how far along with a you are and sourcing your input costs internally.

Sure I mean, you know what I would say that select is very much a work in progress, but we're very happy with how it's going to date you know select is now in more than 950 stores. We mentioned on the call that we've just entered six new markets in the last call. It eight weeks, so still very early days, but a very strong reception for select on the east.

Coastal and our stores and on wholesale basis. So feeling very good that we can get select to be the leading national I don't use brand in the country and open up many more doors between now and the ended a year in terms of integrating selecting our operations were making progress in markets like California, Nevada, Oregon, Arizona.

What we already had existing perfect footprints as well as and Maryland, and we're launching selected markets, where we already had established footprint like Connecticut's, Florida Me, Massachusetts. So as we go into new markets, where clearly as president we will most certainly be driving margins that are better that works like most of <unk> specialty.

Sure and overtime I think margins will improve on select but it's still very much a work in progress. It was call. It a low single digit EBITDA business and we need to worked out margin higher we intend to do so as you move in a more profitable markets on that in Illinois and on the East coast.

Yeah, just a guy a sense of top line for Q2 selects monthly revenues were up over 20% versus Q1 and the June the month of June was a record month for select.

Thanks, that's a that's great color and just a follow up by one if I could you know your margin. This quarter was was very impressive given all the headwinds that you guys faced.

Could you maybe rank in order of magnitude of Oh, you know beneficial impact of between you know the select backwards integration or expanding production capacity for greater scale benefits or or or maybe even going forward or a source of of March.

An expansion could be having profitable, Illinois in Pennsylvania.

Well I mean, I'll, let Mike you know expand if he wants to but I think what you're going to see from currently has a continued scaling of our business and as we do so particularly in highly profitable markets on the east coast, and Illinois, you're going to see more profitability margin improvement. So feeling very optimistic we agree there were some headwinds.

And to do some very slight headwind still in Q3 as we deal through confident at some additional costs, but I think that will be more than compensated for by adding capacity markets like Florida, Massachusetts, Arizona, Illinois, Maryland, Pennsylvania as an example, so we're feeling very good about where we're going from a profitability and margin perspective.

Yeah, just just to give us better color on the Q2 gross margin it was down from Q1.

Like we talked about obviously the impact from coded 19 in Nevada, and and Massachusetts, Obviously, a higher mix of select revenue relative to total revenue, but on the positive side, Arizona, Connecticut, New York All showed a margin improvement over Q1.

Thanks for that additional color and thanks for taking my questions. Congrats again.

Thanks.

Our next question comes from Neil Kilmer with Haywood Securities.

Yes, thanks, very much good evening and good quarter, maybe I'll, just actually be falling on im not question.

On the on the overall margin profile necessarily focused on gross margins, but maybe EBITDA margins.

As you bring in grass roots in the quarter. You know are there any integration costs or obviously I think is gonna be some time as he figure out what synergies you can achieve should we be anticipating just a very short term you know a blip in the in the margin improvement I'm, just without integration process or any color you can provide on that aspect.

Yeah. This is Mike So I think in terms of integration costs, there won't be a lot. Obviously you know there's there's limited overlap between the states that we operate in and that grassroots operates and so from a cost cutting perspective, obviously, we'll be looking at corporate overhead with respect to margins for grassroots specific.

We are they are already EBITDA positive EBITDA was positive in Q2.

That being said grassroots EBITDA margins are not yet that currently levels or whoever as they continue to scale, we do expect that their EBITDA margins to improve each quarter and by Q4 Q1 of next year, we would expect their margins to reach the levels that are roughly some of the work here with us today.

Okay. Thanks, very much a that's helpful and then.

Maybe just a your comments on Pennsylvania now that you have the grassroots assets folded in and you have those there's another clearly licenses you had what sort of just to your plan. There I know you mentioned you know in your prepared remarks with respect to them to stores open and an additional it cuts you hobbies still going to go forward and continue to build out those so.

Those licenses.

Absolutely Yeah, we really like to Pennsylvania market, maybe the fastest growing market on the East Coast, you know that in Florida very strong consumer demand you know as we said in my prepared remarks with the grassroots nine stores plus the ability to open up three more and I'll take us to 12 retail stores and we will build out the critical registered.

License as well and that will take us to 18 locations.

Leading footprint in the state and we're very excited about the business you know as Boris and I've said, we also believed that new Jersey as a very important catalyst in the fall it's likely to go don't use and you can imagine that many of the states in the mid Atlantic will follow recruiting, Pennsylvania. So we think that the timing is right to continue to build out in that state.

That's great thanks very much.

Our next question comes from Scott Fortune with Roth capital.

Good afternoon, and thanks for taking the questions. Its first the impacted 25.6 million impact I'm on the quarter. Most that came from the bad and Massachusetts, where are we those levels for each of those states that kind of pre cove. It and then looking at that each of those states going forward kind of expectation I know, Massachusetts.

It's come back up that from a net Nevada standpoint.

Yeah, we are definitely still feeling some called the impact most notably in Nevada. The recovery has been challenged I think it's a function of really where dispensers are located there down on the strip I'm actually you aware tourism is a fraction of what it once was in Nevada. So were most certainly feeling the impact of.

The lack of tourism, although we cater to a local crowded very much was a lot of service workers and people that work down the strip and so we're definitely feel that impacted numbers are getting better but.

Certainly not pre Colby levels were also still feeling a drag in Massachusetts. The numbers are most certainly getting better but you know we had very high expectations. For example in a market like Provincetown first on tourism season, and tourism is very muted right now in Massachusetts. So.

A recovery as much fat farther along in Massachusetts, but still a bit you did given where our expectations were pretty confident.

And I think we'll feel that well continue filled out through through Q3.

Okay, no thinks it color on that and then focusing on Florida little bit I know you guys are paying a lot effort there it sounds like you've you've come onboard now in July that means harvests starting in September and October the double that capacity, but can you provide more color on that and are we seeing the growth.

So it's kinda factors it goes new patients.

The New York residence in Florida, increasing that you are you gaining market share from new consumers are an extensive others just kind of step us through a I either to grow Florida going forward in on that for acute ramp primarily here.

Yeah sure for US as you rightly pointed out we will be harvesting and in late September early October and I went really define our limitations in Florida are around supply chain.

The demand for cannabis is incredibly strong Florida.

Frankly, our supply chain hasn't caught up to our store account, but it will in October and we intend to open up 11 more stores through the end of year, and we think that we'll be able to capture a lot of market share.

As a result that having additional products and bringing innovative new products to Florida as we said their call. We were the first work to larger toolbar product. We've got a number of new innovative products are sleeves. We recently launched select entered the market and select is having a very strong early reception. So we fully intend to capture.

New consumers as well as take market share from somebody other competitors and we're gonna worked very hard to get to the number one position in that market.

Okay. Thanks, I will jump back into queue.

Our next question comes from Graham Kreidler with eight capital.

Hi, good afternoon, and thanks for taking my question I just wanted to follow up with the question respect to the brand portfolio I. Appreciate the comments earlier about select and the lack of cannibalization and that you see when introducing that market into new markets. I was just wondering with respect to the big purely Fran.

And and its wellness position has there been anything that surprised you as a waiter or throughout Q2, given its positioning and maybe some of the changing use cases that we've seen from consumers during the height of of covert lockdowns or even sustaining coming out of that thank you.

Hey, Joe Barron's, you might not want yeah, Hi, how are you still there yeah, I think I think where I'm sorry, My dog is working in the background, but no we haven't seen any drastic changes.

In Q relief as a as a function of health and wellness. Other then increase usage or by the consumers and more frequent trips good to this spend threes.

Yeah overtime, you know we will see you know some separation between selecting a relief is purely because really focused on health and wellness and select is more lifestyle, but you know we just continue to see adoption of new form factors growth and things like animals on throughout our retail.

Platform.

And we continue to see you know, we expect to continue to see that into the third and fourth quarters.

Okay. Appreciate it thank you.

Our next question comes from Pablo do away with Cantor Fitzgerald.

Thank you and go to the go to the leases in the quarter aboard is gonna have to where she was more than the regulatory side.

Well, obviously your ability to store, it's a goal in mind right. If you look at them into field area 22 stores on the Pennsylvania side, only one store yours.

The New Jersey side do you have any insights in terms of how that plays out after the November balance I mean, do you are you able to start rig right away and the first of January audience I went to taking on I would you ever tool for them to agree on on the rules that what we spend much issues that you just some color there.

So you know how strong is that we'll see shown over the next 612 months than two months intensive competition I understand the monkeys went through and the second question on direct front just in terms of the notion of if they don't medical program was proposing to Biden plan do you think that's that that would eventually be implemented given that you're gonna have 40 stage with different.

Medical programs, how would the word that'd be beneficial or negative Fortunately companies like yourself, just some color on <unk>. Thank you.

No I suppose I I think as far as New Jersey is concerned it's our view that New Jersey will take some time to write the regulations. So unlike Arizona, which is basically come out and said that they're going to start recreational sales on April 1st New Jersey hasn't given the timetable and so we do enter.

So take that there'll be some handling between the various parties and various groups or social equity groups or you know a the Democrats Republicans everybody's got though view. So we do think it'll take some time. However, the good news is is that the most competent <unk> one of the most pumping regulators are in the country as New Jersey.

Oh, they've done a very very good job and reglet in that market and so they're very very easy to work with and I suspect we puzzled that the timing maybe slightly accelerated if this was you know I won't name with other states. We all know, but it does it was another state it could take a long time, but it's my view that new Jersey will probably be reasonably quick play.

There's the added pressure of tax revenues, we all know that a lot of the states have a budget deficit and so they're really looking to increase the tax revenues I think the recent numbers coming out of Massachusetts did not go unnoticed err on the east coast in terms of the potential tax revenues one can receipt.

The second question.

Oh I'm the medical side I think follow that frankly, you know it almost becomes a moot point that the medical ball because oh by the time they get around to two passing it. If you go to Biden administration I suspect that most of the east coast will be a adult youth.

And so I, just don't understand how they're going to deal with the fact that almost 80% of the population will have access to don't use but 85% all have access to medical my view is that don't move reasonably quickly to some kind of either stay fact or something something short hopeful legalization and maybe.

Well they'll make some kind of special dispensation for medical but but that's I think if I heard you earlier say about Oh on CNBC I think that the issue is going to be very difficult because you're going to have almost 80% of U.S. population, having access to adult use so from our perspective, you know we really are looking more at the.

The dynamic of the state level with especially the new Jersey ballot, because as as I think you've said and I've said many times I think new Jersey is a watershed event.

If new Jersey goes adult use is almost certain that Pennsylvania, New York in Connecticut, We'll do it as well and I think if we're talking again. This time next year on our second quarter earnings call I suspect that most of the east coast will be maybe boring only Florida most of the east coast will be adult.

That's kind of our view on it at this point, but.

Thank you very helpful.

Our next question comes from Matt Bottomley Canaccord Genuity.

Oh, good evening, everyone. Thanks for taking the questions. Just another follow up question on grass roots, considering or you know where this sector is gone, particularly in there to leading market the Illinois in Pennsylvania can you comment if that's the only is accretive to cash flow from operations on closing a and then also follow up on a like I apologies and they.

Marks but do you have the organic growth of select a you know normalized closing date.

Yeah with respect to cash flow from operations, well have a better read into that on our Q3 call. It certainly accretive to EBITDA on day, one and like I said earlier, we expect grassroots EBITDA margins to continue to increase [noise].

Quarter after quarter as they continue to scale.

I'm sorry, your second question, Yeah, just on select.

All these prepared remarks, but Ah you had about 50% growth quarter over quarter in your wholesale so I'm just curious.

Nor the closing date and just look at select business organically, including all the markets that have been rolled out just what the growth profile.

Yeah, I mean, what putting aside the new markets that are surely markets. We went from four states to eight states in the last few quarters. Their Q2 revenues were up approximately 22% from Q2 to Q1 and Jim was a record month for select so that's the key.

Corestates, if there and obviously, we expanded select into four new states that are clearly states, where we're seeing incremental revenues as result of watching their products and art dispensers.

And.

Yeah, and obviously, obviously on the East coast were clearly pets very substantial cultivation assets the margins on select a much better than they are for instance, in California, where we're still building up the supply chain, that's going to take this probably another 12 months to fully build out the supply chain to supply select.

Fully in its and its operations, but we're moving very quickly there as well, but for instance places like Arizona, Nevada, Oh, all of the East coast. The margins will be very very similar to carefully margins, where it will be difficult more difficult isn't in states, where we don't have cultivation, but place.

Like Colorado flowers reasonably well priced and so we were able to acquire biomass for our products at a good good level. So we're encouraged but it's as Joe the Saudi said its work in progress and we anticipate over the next six to 12 month that selecting to start to resemble a a much closer to cure Lisa.

Arms of the overall margin.

Got it and then just last quick follow up on my interest on the retail side of things you have any estimate of what are your organic growth was on a same store basis I understand there's different levels of ramp depending on eight so maybe just eight you consider bought they mature or what the what the Q2 over Q1 growth rate was for the.

I think we therefore to give that it's Mike well I'll, let you get in a minute, but I think what my view on this is that.

Okay. Good cobot, Oh, it's been very very difficult to compare state I think you're always going to.

Very good.

Good position as of the first quarter to start forecasting August 6th floor basis, well, we've got numbers, but you up instead, we open new stores and in states. All the time and so that comparison is very difficult at this stage, but Mike if you want to give it a shot go ahead, but I think it's easier probably by the time would be capacity and those stores.

<unk> been open for at least the year, that's going to be much easier to forecast since yourself.

Yeah, exactly I mean organic growth in the quarter benefited from growth in Arizona, and New Jersey, New York, a few other markets, obviously offset by Massachusetts in Nevada, the real only key driver to inorganic growth would have been from Connecticut because of the acquisition of though.

Okay. Thanks, a lot guys.

Our next question comes from Dell Kirk with MKM partners.

Hey, Thanks for taking the question so back back on Florida, what's the what's the current thinking for the timing of animals being being permissible and what is your kind of strategy for when that they arrive.

Well, we wish we knew what the exact timing was gonna be for our perspective, it could happen soon enough.

We're certainly ready for it and we're looking forward to being able to offer another whole suite of products, but as I mentioned in my remarks, we did launch at the first chewable product in the state and it's being well received and we're hopeful that you know we can go behind out with more products. As you are aware you know currently snakes products that run the entire gamut of menu across the country.

Sure we've got a full bakery, Connecticut, we make edibles all over the place. So you know we certainly have to know how the recipes and the facilities to do it. We're just waiting on the state. So we will fully embraced the opportunity when it when it comes to us in Florida.

Thank you that's it for me Thank you guys.

Our next question comes from Aaron Gray with Alliance Global partner.

Hi, congrats on the quarter or not thanks for the questions. So first one for me just on and PR. You mentioned, you know multiple keep tuck in acquisitions potentially in the back half of your just wonder if you'd give any color in terms of pentron, what state you're looking at and would not be more on on the whole salary sensors that are any color you can offer there. Thank you.

I mean, what I'll take that I think that Oh.

We don't want to specifically address nice because we don't do a raise prices, but I think you can imagine there are states, where we don't have limits or what we can continue to acquire license is obviously states starting to a adult use our primary targets for us.

Where we want to continue to expand our our retail base, but they're also be other states, where where we're we're entering a a sort of different strategy, where we might be building a substantially large stores and in key markets a in order to address a those markets. So we have.

You know acquisition targets problem, even two or three different places or you know if the prices are right. We will make the acquisitions if not we'll we'll move towards organic growth right. Now, we probably have two or three different states that we're looking at very closely to make strategic acquisitions to a large our market share and our base for distribution.

Okay. Great. Thanks, that's helpful. And then just second one just want to comment on on the debit tender you guys talked about I think he said eight states now accepting and spring and a higher basket I just wonder if you could offer any commentary in terms of the timing of that or you know expected increase rule out you guys mentioned and then also the potential impact you know the Safe Act.

Potentially have in terms of you know different types of plastic being used and also bring a bigger basket enough for the consumer. Thank you.

Yeah, I'll start like so you guys, Mike Yeah, I'm, sorry, I can say right.

We now expect debit cards in eight states and we'll add three more by the fall what we've noticed is that.

The typical transaction is about 20% higher than the average cash transaction and we have not seen any changes in visitation patterns as well so.

People are using the debit cards, there they're spending more with those debit cards now than they would otherwise if they just had cash.

Yeah in terms of safe banking, I mean, where were you know we're optimistic that it's it's not a partisan issue, it's probably the least controversial Canada's bill in Washington, You know every major.

Banking Association, now, including visa and Mastercard or are lobbying for the passage of this bill because it makes sense. It's good public policy. So we're hopeful that we'll get a passage at some point and that will unlock credit card transactions and much bigger basket sizes that you would expect from like traditional retail. So we're optimistic that we'll continue to make pro.

Progress on electronic processing or payments.

Okay.

Great. Thanks, Scott.

Our next question comes from that Mckinley with Needham.

Thank you you had alluded to higher capex in back half, but I didn't hear anything on the magnitude what was the capex in the second quarter and what does that look like as you as you move into the back half.

Yeah. So so capex for the second quarter was about 25, and 25 million a we expect that that will increase in Q3, we haven't given the number out but we also expect in Q4 that that will moderate as well.

So the Capex is a increase in Q3 is really related to the additional spend we're making in Arizona, Florida in Massachusetts, as we built out those cultivation facilities.

Yeah, Matt. This is Joe just to put color on that you know our feeling is that this is not the time to retrench I'm you know, we feel very optimistic about the industry and we see huge demand on the horizon, and so where were investing aggressively in our own operations to capture demand, which we fully expect to realize so you know we see.

Very good I've got a conviction in our strategy.

Great and on the Covidien Pacnet, it's remarkable that you had 20% reduction in your revenue from the 25 million dollar impact you had in Nevada, Massachusetts that you you can't really see a visible impact in the margin rate of the dollars how much of it impacted that have on EBIT dollar that a without it kind of equal to what we should expect from a promote EBITDA rate.

Standpoint, or was it or maybe not as big an impact.

Yeah, I would say it wasn't as quite as big of an impact on EBITDA line. Obviously are asked you name excluding onetime expenses declined from 33% in Q1 to 29.9% Q twos, we continue to scale and you know manage our S. DNA costs. So on the gross margin line, we talked about how that.

Would have a negative impacts but on the EBITDA margin mine I would say was less of an impact due to the way we managed our us DNA during the quarter.

Okay, well money, okay very good thank you.

Our next question comes from Russell Stanley with Beacon Security.

Hello, and thanks for taking my question just following up on New Jersey, you, you've got a growing wholesale business there, but it also seen I think a few new competitors come on as seen in terms of retail just wondering are you seeing that additional competition bite into your retail business at all and that.

All up after taxes related to our utilization.

[noise] no Russell, we're not we're not feeling that at all I mean, what we've said consistently particularly on the east coast as our competition has the elicit market you know more and more people are coming out to elicit market into by regulate attacks candidates. So our business in New Jersey continues to grow where both the leading retailer and leading wholesaler in the state and we.

Back to maintain that position for the foreseeable future as we continue to invest in the market, which we see huge growth ahead of us.

Yeah, but those revenues and elsewhere.

I'm, sorry revenues and gross margin increased during the second quarter over Q1, as well and in New Jersey.

That's great. Thanks for that bad color and just a follow up on that given given the likelihood of voters approved or adult use and a in November. There's also been an ongoing legal battle around the licenses that Oh for which were the application period closed a year ago. Just wondering how you see that legal battle.

Playing out given given their likely the pressure to increase the number players in this market.

Yeah, Russell I would just I would characterize that as part of the course I mean, you see legal battles and you know Nevada in many states that that issue new licenses right. These are highly coveted licenses and when when people don't when there's gonna be disputes. We all know that the market you're going to liberalizing, there's gonna be more competition without a doubt, but you know clearly theres investing.

Aggressively in expansion and we fully intend to capitalize on front that growing market, both as a retailer, but even more importantly, as a wholesaler we're going to bring selection of the market than we view, we view multiple points of distribution has an opportunity to carry our leading brands. So you know we embrace the idea or dispense reporting some are going to certainly have a lot of capacity to capture that market.

That's great color. Thanks again.

Our next question comes from Jesse Pet walk with Cormark Securities.

Hey, good evening, most my questions have already been asked just just one kind of follow up on the on that used to debit card you know beyond the three market that you plan to expand that offering into the far east that are there are there any limitations and eating.

More further across your footprint are there are there. Some that's restrictions you know from a banking regulatory perspective that but then you from kind of going to be on 11 plan markets.

Yeah. This is Mike I would say that you know we renewed our goal is to get into every state. Obviously there are state by state regulation. So.

We're working as fast as we can see to bring debit cards into the states that will allow it. So we should be up to about 11 states by a this well.

Alright, thank you.

That concludes our question and answer session and I would like to hand, the call back over the Daniels Foley for any closing remarks.

Thank you operator, thank you all for joining US today, we would like to invite those of you listening to join us at upcoming conferences and events, including the Needham in Canada to operate we held on Wednesday August 26 for more information. Please visit the Investor Relations section of our website under events. We look forward to speaking with you at these events and on our third quarter 2000.

20 results call stay safe and well.

[noise] [noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.